Sound Bites...

On why Smithfield Farms, originally just a processor, moved into hog production:"If you look at the tray packs of Perdue or Tyson chicken, one looks just like the next. Now, look at the bacon case. Packages are torn open. There's upheaval because people are looking for a pound of bacon that looks better than another. There's only one way to get consistency - that's to have common genetics, feed the

Aug 01, 2000

On why Smithfield Farms, originally just a processor, moved into hog production:

"If you look at the tray packs of Perdue or Tyson chicken, one looks just like the next. Now, look at the bacon case. Packages are torn open. There's upheaval because people are looking for a pound of bacon that looks better than another. There's only one way to get consistency - that's to have common genetics, feed the animals the same way and process them the same way.

"...You can't build a brand name or brand franchise unless you have a consistent product. McDonald's may or may not be the best hamburger in the world, but it is consistent, consistent, consistent."

On the producer-packer relationship:

"I don't know of any other industry, other than farmers, who consistently criticize the people that buy their product. It serves no useful purpose - and it hurts the hog industry in the long run.

"It would be ludicrous for me to blame my problems on the chain stores and the food service purchasers in this country because they are not paying me enough money. It is up to me to look after the interests of Smithfield Foods.But, under no circumstances would I attack the very people I am selling to."

With more than 11 million hogs, Smithfield annually pays $5 million-$6 million (depending on hog prices) into the pork checkoff. Luter is a checkoff supporter but disagrees with how the money is spent:

"For the most part, I think the money has been spent badly," he says. He cites the million-dollar Super Bowl commercials as examples and calls them "nonsense." He favors more checkoff spending on educating consumers about the leanness of modern pork compared to chicken.

"Develop the data to show the nutritional profile of pork today, then convey the message to the American people."

He also believes more funds should be spent cultivating foreign markets and closer working relationships with packers.

"I am a great believer that 95% of the problems in the world are created by a lack of communication."

On what it will take for independent pork producers to compete:

"If an independent pork producer runs an efficient, low-cost operation, they will do just fine. But they have to be efficient and low cost. And, they have to be subject to the same competitive pressures as everyone else in America."

Roughly 40% of Smithfield's total U.S. slaughter comes from independent producers, say.

"Quite frankly, I don't expect us to go beyond that. And, we only represent about 20% of the market in this country in pork (slaughter capacity) Tyson has roughly 35% market share in poultry; IPB has roughly 40% market share in beef.

"Hog producers have to be profitable, they have to be viable, or we don't have a source of raw materials to run our plants.

"...The American farmer needs to wake up to the fact that capital flows to opportunity. That's true whether it's a meat packer or it's an investment banker in New York City. People like that put big money into the business because of excellent profitability."

On price reporting: "It bothers me. Quite frankly, the growing side has enjoyed most of the profitability in the last 10-12 years. Then, they had a short period of time when they had tremendous losses, which they did, but it was of their own making - producing too many hogs. They blame the packing industry and think price reporting is going to solve it."

Luter doubts price reporting will have the desired effect:

"If I know exactly what my competitors are paying, it makes my job a lot easier when purchasing hogs."

On what's next for Smithfield:

"If you raise artificial barriers in this country, you're going to do what Iowa has done with their anti-corporate farming laws. Written and designed to protect the hog-growing industry, they have pushed hog production out of Iowa to North Carolina, Missouri, Texas, Oklahoma and Utah.

"...We try to go to places where we can succeed. Some countries offer more opportunity than we see in the U.S. at this time. If regulations become too tight in this country, we'll invest in Canada and Mexico."

On whether Smithfield's pursuit on the production side will level off:

"...As long as there is some balance of profitability between the hog processing side and the hog growing side, I am perfectly content to stay where I am today. If things change, I will deploy capital in any direction that we think will serve our shareholders best."